A change was made in UK National Accounts: the Blue Book 2017 to correct the estimation of elements of purchased software, which were being double-counted from 2001 onwards along with discrepancies in the modelled data prior to 2001. During further quality assurance, we have identified that 2017 adjustment did not fully address the issue and an additional amendment to other machinery and equipment, and information and communication technology (ICT) equipment is required. Purchased software will be unaffected by this additional amendment. When implemented in the Blue Book 2018 consistent Quarterly National Accounts dataset, to be published 29 June 2018, it will increase the level of gross fixed capital formation (GFCF) across the period by around 1.5% per year in current prices. The average impact on quarter-on quarter GFCF current price growth is positive 0.01% and the average impact on quarter-on-quarter gross domestic product (GDP) current price growth is 0.00%. We do not yet know the definitive impact on the chained volume measures of GFCF or GDP growth rates, we expect them, though, to be similarly small.

1. Main points

UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.1% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018, unrevised from the preliminary estimate of GDP.

When comparing GDP growth in the most recent quarter to the same quarter a year ago, we see a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries.

The services industries increased by 0.3% in Quarter 1 2018; while construction decreased by 2.7% in Quarter 1 2018.

Household spending grew by 0.2%, while business investment decreased by 0.2% between Quarter 4 2017 and Quarter 1 2018.

Compensation of employees increased by 1.6% in Quarter 1 2018, contributing most to the income approach to measuring GDP; in part reflecting an increase in earnings and employment in the latest quarter.

GDP per head in volume terms decreased by 0.1% between Quarter 4 2017 and Quarter 1 2018.

While the bad weather had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited, with partially offsetting impacts in energy supply and online sales.

2. Things you need to know about this release

Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP; the output approach, the expenditure approach and the income approach.

This second estimate of GDP is produced around seven and a half weeks after the end of the quarter. At this stage the data content of this estimate from the output measure of GDP has risen since the preliminary estimate to around 90% of the total required for the final output-based estimate. There is also around 70% data content available to produce estimates of GDP from the expenditure approach and 60% data content for the income approach.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), with the exception of income data, which are only available in current prices.

3. Updated population data were taken on for the quarterly tail (2016 Q1 onwards) in the December 2017 Quarterly National Accounts. Updates to population estimates before this point will be incorporated when the whole time series is open for revision in the Blue Book 2018 consistent data (June 2018).

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Figure 1 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 4 2017 and Quarter 1 2018 is the 21st consecutive quarterly increase and continues the UK’s pattern of growth since Quarter 1 2013.

Growth in UK GDP is now 10.7% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 (Apr to June) 2013.

Figure 1: Quarterly growth and levels of GDP for the UK

Quarter 2 (Apr to Jun) 2005 to Quarter 1 (Jan to Mar) 2018

Source: Office for National Statistics

Notes:

Q1 refers to Jan to Mar, Q2 refers to Apr to June, Q3 refers to July to Sept, Q4 refers to Oct to Dec.

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When looking at UK GDP growth in volume terms in the current quarter (Quarter 1 2018) compared with the same quarter a year ago (Quarter 1 2017), GDP increased by 1.2%.

Implied deflator

The GDP implied deflator at market prices for Quarter 1 2018 is 1.4% above the same quarter of 2017. The GDP implied deflator is calculated by dividing current price (nominal) GDP by chained volume (real) GDP and multiplying by 100 to convert to an index. It is not used in the calculation of GDP; the deflators for expenditure components, which are the basis for the implied GDP deflator, are used directly in the compilation of real GDP.

GDP per head

In Quarter 1 2018, GDP per head fell by 0.1% compared with Quarter 4 2017, reflecting population increasing at a greater rate than GDP. GDP per head is now 3.0% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed this peak in Quarter 2 2015 (Figure 2).

Figure 2: Quarterly growth of GDP and GDP per head for the UK, indexed from Quarter 1 (Jan to Mar) 2008=100

Quarter 1 (Jan to Mar) 2008 to Quarter 1 2018

Source: Office for National Statistics

Notes:

Q1 refers to Jan to Mar, Q2 refers to Apr to June, Q3 refers to July to Sept, Q4 refers to Oct to Dec.

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GDP per head is calculated by dividing GDP in chained volume measures by the population estimates and projections. It is not a measure of productivity or well-being, but is a useful statistic as it removes the impact of the changing size of the population from headline GDP figures.

4. Services and production contribute to growth in the output approach of GDP in Quarter 1 2018

The output approach to measuring gross domestic product (GDP) involves estimating production activity within the UK economy. It increased by 0.1% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018, unrevised from the preliminary estimate of GDP.

Services

The largest component within the output approach of GDP is the services sector, which increased by 0.3% overall in the first quarter of 2018. Positive growth was recorded within three of the four sub-sectors of the services industries between Quarter 4 2017 and Quarter 1 2018, all of which were unrevised from the preliminary estimate of GDP:

transport, storage and communications increased by 0.4%

business services and finance increased by 0.4%

government and other services increased by 0.1%

distribution, hotels and restaurants decreased by 0.1%

As reported in the preliminary estimate of GDP, despite services growing in the most recent quarter, the quarter on same quarter a year ago growth shows a weakening in growth in this part of the economy. This is particularly seen in the more domestic consumer-facing industries such as retail trade, food and beverage-serving activities, and arts, entertainment and recreation (Figure 3).

Figure 3: Growth rates of the services sector and its components, quarter on same quarter a year ago

Quarter 1 (Jan to Mar) 2016 to Quarter 1 2018

Source: Office for National Statistics

Notes:

Q1 refers to Jan to Mar, Q2 refers to Apr to June, Q3 refers to July to Sept, Q4 refers to Oct to Dec.

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Production

Production output was estimated to have increased by 0.6% between Quarter 4 2017 and Quarter 1 2018, revised down by 0.1 percentage points from the preliminary estimate of GDP. Within production, three of the four sub-sectors increased in this period, the previous estimates are shown in brackets:

electricity, gas, steam and air conditioning increased by 2.5% (2.3%)

mining and quarrying increased by 2.2% (3.5%)

manufacturing increased by 0.2% (unrevised)

water supply industries decreased by 1.0% (negative 0.3%)

Strength in the electricity, gas, steam and air conditioning industry can be attributed to below-average temperatures in February and March 2018, while the increase in mining and quarrying was due largely to the recovery from the fall in oil and gas production in Quarter 4 2017. The Forties pipeline system (FPS), which closed for several days in the final quarter of 2017, returned to normal operating capacity in Quarter 1 2018.

Construction

Construction output was estimated to have decreased by 2.7% in Quarter 1 2018, revised upwards from negative 3.3% in the preliminary estimate of GDP. This is the weakest growth since Quarter 2 (Apr to June) 2012. As previously reported, there is some evidence of an impact from the bad weather on this industry, however, construction output fell across all three months of the quarter, not just the period of the bad weather.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, decreased by 1.4% into Quarter 1 2018, unrevised from the preliminary estimate of GDP.

Figure 4 shows the contributions to GDP growth from the sectors of output since Quarter 2 2016. In Quarter 1 2018, the services industries made the largest contribution to GDP growth, followed by production, while construction, followed by agriculture deducted from GDP growth. In all periods, the services industries contributed most to GDP growth.

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5. Household spending remains subdued in the first quarter of 2018

The expenditure approach to measuring gross domestic product (GDP) increased by 0.1% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018. The expenditure approach is the sum of all final expenditures within the economy, that is, all expenditure on goods and services that are not used up or transformed in the production process.

Household final consumption expenditure (HHFCE)

HHFCE, or household spending, grew by 0.2% between Quarter 4 2017 and Quarter 1 2018, continuing a pattern of subdued growth seen in recent quarters. When comparing Quarter 1 2018 with the same quarter a year ago, household spending grew by 1.1%. The quarter on same quarter a year ago growths show a pattern of weakening through 2017 and the first quarter of 2018, consistent with the weakness seen in consumer-facing industries in the output approach to measuring GDP.

General government final consumption expenditure (GGFCE)

GGFCE, or government expenditure, increased by 0.5% between Quarter 4 2017 and Quarter 1 2018. The largest contributor to this increase was spending on public administration.

Gross fixed capital formation (GFCF)

Initial estimates of business investment, which makes up the largest proportion of total GFCF, decreased by 0.2% in Quarter 1 2018. The private dwelling and general government sectors of GFCF contributed most to the GFCF increase in Quarter 1 2018, growing by 3.4% and 3.2% respectively.

Trade in goods and services

In Quarter 1 2018, the trade deficit narrowed slightly to £9,228 million in volume terms, from £9,375 million in Quarter 4 2017. Total trade imports decreased by 0.6% whilst total exports decreased by 0.5%, between Quarter 4 2017 and Quarter 1 2018. Decreases in both imports and exports in nominal terms were larger than decreases in volume terms, which may be linked to movements in the sterling exchange rate seen in Quarter 1 2018.

The trade in goods figures in this release are consistent with the monthly UK trade release published on 10 May 2018.

Figure 5 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures from Quarter 1 2016 to Quarter 1 2018. In the latest quarter, household spending, government spending and trade imports all contributed positively to GDP growth, while gross capital formation (which includes GFCF, inventories and valuables) and trade exports deducted from GDP growth.

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6. Compensation of employees drives growth in the income approach to measuring GDP

Nominal gross domestic product (GDP), or GDP not adjusted to take account of inflation, increased by 0.3% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018.

The income approach to measuring GDP adds up all income generated by production in the form of gross operating surplus (profits), compensation of employees (income from employment), mixed income (self-employment income) and taxes on products and production less subsidies for the whole economy.

All data quoted in the rest of this section are in current prices seasonally adjusted.

Compensation of employees (CoE)

CoE consists of wages and salaries, and employers’ social contributions. Total CoE showed positive growth of 1.6% (seasonally adjusted) into Quarter 1 2018. This compares with an increase of 0.7% in the previous quarter. The increase can in part be attributed to an increase in earnings and a rise in the numbers of people employed, as reported in the UK labour market: May 2018 publication.

Taxes on products and production less subsidies

Taxes on products and production less subsidies showed a decrease of 2.4% in Quarter 1 2018. The fall in taxes on products and production is due to a decrease in consumer-facing taxes including Value Added Tax (VAT), Alcohol and Tobacco Duty.

Other income

There was an increase in other income of 0.5% in Quarter 1 2018. Other income is comprised of mixed income (mostly self-employment income) and the operating surplus (profits) of the non-corporate sector. This slowed from a growth of 1.2% in the previous quarter, in part due to a reduction in the numbers of self-employed as reported in the UK labour market: May 2018 publication.

Gross operating surplus of corporations

Gross operating surplus of corporations saw a decrease of 1.3% between Quarter 4 2017 and Quarter 1 2018. This category includes the operating surplus, or profits, of private corporations, private non-financial corporations and public corporations.

Figure 6 shows the contribution made by income components to current price GDP. In most quarters CoE provides the largest contribution to growth in the income measure of GDP, this component contributed 0.7 percentage points to current price GDP growth in Quarter 1 2018, while gross operating surplus of corporations, and taxes on products and production less subsidies deducted from GDP growth.

Figure 6: Income components percentage contribution to GDP growth for the UK, quarter-on-quarter

Quarter 2 (Apr to June) 2016 to Quarter 1 (Jan to Mar) 2018

Source: Office for National Statistics

Notes:

Q1 refers to Jan to Mar, Q2 refers to Apr to June, Q3 refers to July to Sept, Q4 refers to Oct to Dec.

Contributions may not sum to GDP growth due to rounding.

This chart does not include the statistical discrepancy and components may not sum to the percentage change in average GDP.

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7. How is the UK economy performing compared with other European and non-European countries?

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may subsequently have been revised. At the time of preparation, data for Canada were unavailable; therefore are not included in the following analysis.

Most of the areas included within our international comparisons witnessed positive growth in Quarter 1 (Jan to Mar) 2018 with the exception of Japan, which decreased by 0.2% (Table 2). The strongest growth seen in this quarter was 0.6% by the USA. France, Germany and Italy all saw growth of 0.3%.

European Union (EU28) economies grew by an average of 0.4% in Quarter 1 2018. This means that average gross domestic product (GDP) growth for this group of countries has been positive for 20 consecutive quarters. G7 countries saw an average of 0.4% growth in Quarter 1. All G7 countries are above pre-economic downturn peaks except for Italy whose GDP remains 5.5% below the pre-downturn peak (Quarter 1 2008).

The area currently showing the biggest recovery over this period is the USA, up 16.8% since the downturn. UK GDP is now 10.7% above the level recorded in Quarter 1 2008.

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8. Links to related statistics

Release content

All data in this bulletin are seasonally adjusted estimates. Non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table. Data published in the UKEA reflect data as published on 29 March 2018 and will be next updated on 29 June 2018 when the Quarter 2 (Apr to June) 2018 quarterly national accounts release and UKEA will become consistent.

Index of Services

9. Are there any upcoming changes?

Blue Book 2018

The next quarterly national accounts (29 June 2018) release will be consistent with the UK National Accounts, The Blue Book 2018, which will be published on 31 July 2018. The annual Blue Book includes a number of improvements to data sources and methods; we have published a number of articles detailing these changes and their impact on the national accounts:

New model for publishing GDP

An article introducing a new publication model for GDP was published on 27 April 2018. It provided detail of the upcoming changes to the GDP publication model as well as the benefits and trade-offs and the impact on data content.

In summary, for the first time, an estimate of monthly GDP will be published on 10 July 2018 (for the reference period of May) and there will be two quarterly estimates of GDP per quarter rather than the current three; the preliminary estimate of GDP will be deferred by around two weeks and the second estimate of GDP will be brought forward by two weeks to form the new first estimate released six weeks after the end of the quarter. The income and expenditure approaches to GDP will be made available in this new first estimate, two weeks earlier than presently. The first estimate of quarterly GDP (for Quarter 2 (Apr to June) 2018) under this new model will be published on 10 August 2018.

Future of the Business investment provisional estimate

As of August 2018, the dedicated Business investment provisional results bulletin will no longer be produced. Gross fixed capital formation (GFCF) and business investment high-level commentary will be included instead within the new first quarterly estimate of GDP bulletin and the GDP publication tables will be expanded to include current price as well as chained volume measure data in all quarterly GDP releases. All other current business investment release material will be released approximately one week after the first quarterly estimate of GDP.

There are no plans currently to change the format and content of the Business investment revised results bulletin published alongside the quarterly national accounts other than the normal evolution of a bulletin.

International Passenger Survey

The International Passenger Survey (IPS) is in the process of transferring data collection from paper forms to tablet computers. Initial analysis of the new data suggests there may be discontinuities arising from the change in mode of collection. These new data will not be used in headline trade or other national accounts estimates until we have produced a consistent time series on the new basis. More information is available in the Overseas travel and tourism release.

10. Quality and methodology

the strengths and limitations of the data and how it compares with related data

uses and users of the data

how the output was created

the quality of the output including the accuracy of the data

The national accounts are drawn together using data from many different sources. This ensures that the national accounts are comprehensive and provide different perspectives on the economy, for example, sales by retailers and purchases by households.

Important quality issues

There are common pitfalls in interpreting data series and these include:

expectations of accuracy and reliability in early estimates are often too high

revisions are an inevitable consequence of the trade-off between timeliness and accuracy

early estimates are based on incomplete data

Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”.

Many different approaches can be used to summarise revisions; the “Validation and quality assurance” section in the Quality and Methodology Information report analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

Reaching the GDP balance

The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output in the short-term than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest quarter where the output data takes the lead due to its larger data content.

Alignment adjustments, found in Table M of the second estimate of GDP datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the expenditure and income components of GDP as required. They are applied to the individual components where data content is particularly weak in a given quarter due to a higher level of forecast content.

The size and direction of the quarterly alignment adjustments in Quarter 1 2018 indicate that in this quarter the level of expenditure is higher than the level of output and income is lower than the level of output.

Table 3 shows the balancing adjustments applied to the GDP estimates in this publication.

Table 3: Balancing adjustments applied to the Second Estimate of GDP dataset for Quarter 1 (Jan to Mar) 2018